1. Technical Field
The invention relates to retirement income planners. More particularly, the invention relates to forecasting a customer's income, managing order of withdrawal, forecasting a likelihood that assets at retirement will provide needs for retirement, and providing ability to perform alternative analysis by changing various retirement goals in retirement.
2. Description of the Prior Art
In the past, retirement was defined as the period following an individual's withdrawal from the labor force. Today, however, most people vary their attachment to the labor force throughout their lives, so retirement may be thought of differently, for example, in terms of an Accumulation Phase and a Drawing-Down Phase. The Accumulation Phase is the period during which individuals accumulate financial assets. The Drawing-Down Phase is the period during which individuals start using their financial assets to meet their income needs. Most Web and traditional financial advisory products and services are aimed at people in the Accumulation Phase. Despite the fact that people in the Drawing-Down Phase are currently among the most wealthy in America, most financial institutions fail to provide a broad range of services dedicated to these individuals and their on-going income (cash flow) management needs.
As individuals approach or enter retirement their investment objectives shift away from accumulation/growth and move toward income generation. Individuals seek to replace the paycheck they used to receive from their employer. During this phase an individual will generally draw income from multiple sources: part-time employment; company pensions; social security benefits; annuities; investments, and the like.
In order to begin to manage their income needs during the Drawing-Down Phase, individuals need to identify and evaluate their existing and potential sources of income. A very important potential source of funds for this group will be investment income. Therefore, identifying the timing and amount of income being currently generated by their investments and evaluating individual investments based on income in addition to traditional risk and return measures is needed in order for this group to manage effectively their overall income needs.
There is very little in the way of education and advice-type products in the market today that help individuals evaluate their investments based on their overall income needs.
Except for the assistance of a personal financial planner, very little advice and information addressing this shift to income and retirement risk management exists in the market place.
Prior art is geared toward providing customers with tools for planning for retirement, as opposed to in-retirement. Much of the prior art focuses on how to get growth in a portfolio.
One prior art reference is T. Rowe Price Associates, Retirement Income ManagerSM Analysis and Recommendation, prepared Jan. 10, 2000, provides specific advice regarding improving the user's probability of success in meeting their in-retirement goals. T. Rowe price uses simulation techniques to identify a retirement income strategy that they believe is best for the client based on the amount of retirement assets the client has and the client's personal goals. The output includes four different retirement income strategies: a recommended strategy, two alternative strategies, and the strategy that is most likely to meet the client's monthly income goal. Each strategy includes a recommended pre-tax monthly income, an estimate of the probability that the withdrawal amount can be sustained throughout retirement, a product allocation (% in variable annuities and % in mutual funds), an asset allocation for mutual funds, and an asset allocation for variable annuities. They also provide an implementation plan that includes recommendations of specific T. Rowe Price investment products and specific guidance on the amounts to withdraw over time from each account type.
Following are key assumptions made by T. Rowe's model.                The client's current portfolio is converted to cash. All taxes and transactions costs are completely ignored in this conversion process;        Cash is invested in one of 13 model asset allocation portfolios;        Asset classes included in these model portfolios are:                    U.S. large-cap;            U.S. small-cap;            Investment-grade bonds;            High-yield bonds;            Money market securities;            Foreign stocks; and            Foreign bonds.                        
It should be appreciated that that there is no allocation to municipal bonds because, it appears that tax efficiency is not a goal of the product.                Asset allocation becomes more conservative over time;        Assets are drawn down first from taxable accounts, then tax deferred assets. Roth IRAs are left for last in all analyses;        Beginning at age 70 and one half, minimum required distributions are included in the client's income strategy. When the minimum required distribution exceeds the draw-down amount, the excess is placed in the client's taxable account;        The projected withdrawal amounts are pre-tax, i.e. there is no attempt to adjust for the taxes a client will owe due to the withdrawal;        Each year, an estimated tax on the appreciation or depreciation of the assets in the client's taxable account is calculated. T. Rowe determines the tax rates (capital gains and ordinary income) used in this calculation and it is not the rate inputted by the client. The return on money market and bond funds is completely taxed at ordinary income rate. The return on stock mutual fund assets is taxed at 60% of the ordinary income tax rate; and        Returns on key asset classes are normally distributed; T. Rowe determines the future average return on each asset class (according to T. Rowe, they use rates lower than historical rates to be conservative); the historical standard deviations of returns on each asset class and the correlations among asset classes are set at their historical levels. T. Rowe cautions clients that their estimates of probability are probably too high because actual stock return distributions have a higher concentration of returns in the tails of the distribution than is implied by normality.        